From Charles Dow, Robert Rhea and Richard Schabacker — all three early pioneers of stock market technical analysis — four driving principles of momentum trading have endured the test of time…
And still guide technical trading decisions to this day.
Each of these four principles of momentum trading can be quantified mathematically... And most, if not all, mechanical trading systems are based on at least one of the four.
One thing I’ve learned over the years is stocks tend to get volatile when they approach and break through a 52-week high/low price point.
The main reason for this volatility is because the one-year high and low is the center point for many traders, including professional hedge and mutual funds that put a lot of weight into the 52-week high/low price.
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A Gap is a break between prices on a stock chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. In general, gaps occur at the opening of major exchanges. Opening gaps result from a newsworthy event that happens after trading is over, which has an effect on the price of a security. This effect outside of trading hours results in an imbalance in supply and demand when the market opens the next day, thus leading to a gap.
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